Ruhr Economic Papers
Ruhr Economic Papers #219
The Inefficiency of Market Transparency – A Model with Endogenous Entry
by Yiquan Gu and Burkhard Hehenkamp
TU Dortmund, 11/2010, 24 S./p., 8 Euro, ISBN 978-3-86788-251-4download
Including the entry decision in a Bertrand model with imperfectly informed consumers, we introduce a trade-off at the level of social welfare. On the one hand, market transparency is beneficial when the number of firms is exogenously given. On the other, a higher degree of market transparency implies lower profits and hence makes it less attractive to enter the market in the first place. It turns out that the second effect dominates: too much market transparency has a detrimental effect on consumer surplus and on social welfare.
JEL-Classification: D43, L13, L15
Keywords: Market transparency; endogenous entry; homogenous products